METHODOLOGY
It is widely agreed that there are three main approaches to business valuation:
1) The asset approach
Looks at the value of a company's assets and liabilities. Importantly considering the return generated on the asset base/equity.
2) The relative approach
Looks at similar company's in the market place, recent selling price multiples, and even listed company trading multiples.
3) The income / free cash flow approach
Focuses on the company's free cash flow generation and the future free cash flow expectations, discounting back to a present value.
Different approaches are used in different sectors, situations, and in different environments. To get an objective and holistic grasp on the final intrinsic valuation - all approaches should be applied, reviewed, tested and weighted accordingly. The valuation is also tested under differing scenarios, identifying a 'base case', a 'good case', and a 'bad case'; or under any conceived scenario for that matter. Through this testing the financial sensitivities can be identified and brought to the attention of the owners and investors. This information supplies further financial and operational understanding and can extract advisory or efficiency benefits from the valuation.
Valuations can be completed remotely. With access to company financials and discussions with management, brokers, or buyers, most valuations can be completed over email and telephone.
1) The asset approach
Looks at the value of a company's assets and liabilities. Importantly considering the return generated on the asset base/equity.
2) The relative approach
Looks at similar company's in the market place, recent selling price multiples, and even listed company trading multiples.
3) The income / free cash flow approach
Focuses on the company's free cash flow generation and the future free cash flow expectations, discounting back to a present value.
Different approaches are used in different sectors, situations, and in different environments. To get an objective and holistic grasp on the final intrinsic valuation - all approaches should be applied, reviewed, tested and weighted accordingly. The valuation is also tested under differing scenarios, identifying a 'base case', a 'good case', and a 'bad case'; or under any conceived scenario for that matter. Through this testing the financial sensitivities can be identified and brought to the attention of the owners and investors. This information supplies further financial and operational understanding and can extract advisory or efficiency benefits from the valuation.
Valuations can be completed remotely. With access to company financials and discussions with management, brokers, or buyers, most valuations can be completed over email and telephone.
